Watch out for bank transactions that lock in money for a long period leading to penalties and loss of money.
When you are transferring cash, especially from abroad, there are times when the money comes to the local account after 10-15 days. This, despite the money being debited from the foreign account. And when you are paying charges to the bank, it is a let down because the transaction costs incurred seem too high. Here are some situations when you need to ask whether paying charges makes sense.
Foreign deposit: When you receive a payment for business deals/job/consultancy abroad, it will have to be transferred to your local account. There are also situations where a non-resident Indian transfers money from his foreign bank account to his non-resident account in India. When such transfers are made through a cheque or even a demand draft, usually, the duration is inordinately long.
For instance, sometimes, the amount is debited from the foreign account and credited only after 10 -15 days. And the transfer comes at a cost too. Some banks charge a nominal 0.25 per cent - 0.30 per cent. But that is not all. The delay assumes more importance when your money is linked to the prevailing exchange rate on the date of credit.
If the exchange rate does not go in your favour during those few days, you stand to lose some serious money. So, in case of a long delay, approach the bank to be clear about the transaction, charges levied and the applicable exchange rate. Of course, the first choice should be a wire transfer as it is much faster.
Outstation deposit: When a bank customer deposits a cheque within the country, but not in the city where he resides, there is a cost involved. Although banks accept cheques at different branches, the clearing takes a longer time if not deposited at the home branch. Often customers find that the money takes a really long time to be transferred –sometimes over a month. The bank, during this period, enjoys the benefit of using this floating money (as it has not been deposited). Apart from this, there are additional charges involved like, a collection fee. In reality, there should be no charges. When such charges are imputed, it is important to go to the bank and get it reversed. The charges for outstation cheques can range from 0.4 per cent to 0.75 per cent, subject to a minimum of Rs 50-100.
Between accounts: Often, a person holds different kinds of accounts with the same bank, like a trading or mutual fund investment account that is linked to the bank account. In such a case, it is uncommon to find that though an instruction has been given for the monthly or occasional fund transfer, there is time gap between the debit and the credit. This could cost money, such as an earnings loss, if the investment is made at a lower net asset value (NAV) or the stock bought at higher prices. The real danger lies in penalties. In case, the credit is delayed, there could be indirect charges if the amount is supposed to service a home, personal or auto loan. For credit cards, the penalty can be really high running to Rs 350-500 plus interest costs.
The writer is a certified financial planner